NRS 78.746 provides that, with several qualifications, the exclusive remedy of judgment creditors with respect to the stock in a relatively closely held corporation is to charge a stockholder’s shares.  To the extent so charged, the creditor only has the rights of an assignee of the shares.  This means that a judgment creditor has rights to the economic interest in the shares and has no rights to the non-economic interests (e.g., right to vote).

NRS 21.090(1) provides a list of property that is exempt from execution, except as otherwise specifically provided in that section or required by federal law.  One of the items listed is stock of a corporation “described in subsection 2 of NRS 78.746 except as set forth in that section”.  NRS 21.090(1)(bb).  In an opinion issued yesterday, the Nevada Supreme Court answered the question of whether NRS 21.090(1)(bb) allows a debtor to exempt his entire interest in a closely held corporation or whether the exemption is limited to the debtor’s noneconomic interest.  Becker v. Becker, 131 Nev. Adv. Op. 85 (2015).  Writing for the Court, Justice Mark Gibbons concluded that under NRS 21.090(1)(bb) a debtor can exempt his stock, but his economic interest in that stock can still be subject to the charging order remedy in NRS 78.746(1).

Why does any of this matter?  The Nevada Supreme Court was answering a certified question submitted by the U.S. Bankruptcy Court.  The appellant had filed a petition for relief under Chapter 7 of the Bankruptcy Code.  In his property schedule, he listed shares of stock in two corporations with an aggregate value of over $1.5 million.   He claimed that his entire interest in these shares was exempt pursuant to NRS 21.0909(1)(bb).  Not surprisingly, several creditors objected.

Note to readers: As a reminder, this post is not intended to provide legal advice nor does it purport to be a complete explanation of the statutes and cases mentioned.  Although not lengthy, NRS 78.746 is a complicated statute.  For example, NRS 78.746 applies only if a corporation has fewer than 100 stockholders of record at any time.  In addition, the corporation must not be a publicly traded corporation or a subsidiary of a publicly traded corporation, either in whole or in part, or a professional corporation as defined in NRS 89.020.  If you have questions about any of the topics raised in this blog, hire an attorney and make sure that she or he is properly feed.

A further note to readers:  Tomorrow is a Nevada Day!  Here are some ways to celebrate:

• Watch The Ox-Bow Incident starring Henry Fonda.  The movie is based on novel of the same name by Walter Van Tilburg Clark, perhaps Nevada’s most famous author;

• Read City of Trembling Leaves, a semi-autobiographical novel set in Reno, also by Walter Van Tilburg Clark;

• Sing the Nevada State song “Home Means Nevada” by Bertha Raffetto.